Lecture02 - Review: Where is the economy in fall 2010? GDP...

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Review: Where is the economy in fall 2010? • GDP growing, but only weakly • Employment growth slow • Unemployment: High and likely to remain so • Consumption, Income well below trend Measuring the economy: Some key concepts • National income accounting • Price indexes GDP •G ross D omestic P roduct •G ross – Gross of depreciation • Domestic – Production within borders – Compare GNP: Production by nationals • Product
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What’s GDP • Value of goods and services produced Generally includes only market transactions Excludes • Home production • Value of health, longevity • Value of leisure • Costs of environmental degradation – Exception: Homeowner’s implicit rental value Alternatives to GDP • Narrower – Net national product – Consumption • Broader – Nonmarket transactions – Environmental accounts – Corrections for leisure, income distribution, health and longevity – “Happiness”
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Source: Stevenson and Wolfers BPEA (2008). GDP Measurement • Demand • Income • Production • All three measure value added Components of GDP: Demand side Y = C + I + G + NX C = consumption I = investment (business fixed, residential, inventories) G = government purchases NX = net exports = exports - imports
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Lecture02 - Review: Where is the economy in fall 2010? GDP...

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